Sunday, December 16, 2007

The reality of foreclosure

I know there has been a great hue and cry about recent calls for a housing bailout and I am certainly against the idea of giving a free pass to those who speculated and lost in their speculation. But not all who are hurting due to falling housing prices are guilty of speculation or stupid financial decisions. Some just have bad timing and the truth is that as this crisis continues there will be more people who are the victims of circumstance.

How far the gov't should go in mitigating the effects of the bursting of the housing bubble is a matter for debate but we should be realistic about what our country is facing. The housing bubble is just one part of a credit crunch which threatens to spread, as it does there will be increasing calls for more intervention. Maybe it is better to try something small now in order to avoid the public pressure for much more drastic gov't intervention in the future.

Here are two stories which put a more human face on the process of foreclosure. One is a heartbreaking story of a family who really did nothing to deserve their fate.

Their eldest child, 11-year-old Kiki, suffers from a rare bone disease that has required three operations so far. Medical bills have topped $100,000 and, even with insurance, the Smiths owe more than $10,000. Those bills mounted as monthly payments on their adjustable rate mortgage shot up — from $1,000 to $1,400 — on the home they bought for $159,000 in 2004.

"You have to pick between a house and your child," Smith says. "That's an easy choice."

...

f only they'd opted for a fixed-rate loan, Smith said. Her husband, a handyman, just got a nice promotion. Perhaps they could have made it through this rough patch.

"You work so hard to get good credit and live in a good school system," Smith said. Then, watching her girls wrestle in the yard, she caught herself. "I know there are a lot of folks worse off than we are."

A lot of folks are worse off but the question is who do you help and how do you help them. There is no doubt that some of the afore mentioned undeserving will be helped. IMHO, that is not excuse to not help people like the Smith's. People like these:

Inferring motivation for intentional damage is not an exact science. Neglect, mental and/or drug impairment, and financial desperation -- appliances are almost always missing -- are difficult to rule out. However, some situations seem to point only to vengeance.

"When you think about the mind-set of people when they came to town in '04, we were the get-rich-quick city," says Loreen Stuhr, owner of appraisersoflasvegas.com. "You move to town, invest in a property and make a hundred thousand on your house.

"But it didn't work out that way," she says. "And the frustration of losing everything can be overwhelming -- especially for the ones who relocated here."

Those who would damage their homes in acts of revenge are just jerks who probably never had any attachment to their homes. It is a shame that these people will probably get away with vandalism but the system is clogged with so many cases that I doubt the banks will bother to hold them accountable.

The cult of home ownership at any price is dying off hard. I imagine that we will have many years before the public or lenders will feel comfortable speculating in residential real estate. That's a good thing. Speculation fueled by easy credit is very destructive. We have learned that lesson but in the meantime let's not let our righteous anger at the stupid and greedy get in the way to even the banal attempts to soften a crisis that threatens to cripple the economy.